"World-class AI player"! Analysts are bullish, Broadcom's stock price soars 5%

Broadcom unexpectedly won high praise from Wall Street analysts after hosting an AI-themed event on Thursday local time, and its stock price soared.

Broadcom's overnight US stock surged by 5.6% to $1348 per share, accumulating a 114% increase over the past year.

TD Cowen analyst Matthew Ramsay, who had a change of heart, wrote a report titled "Better Late Than Never?" after a recent event, upgrading Broadcom's stock rating to "Outperform" and raising its target price from $1400 to $1500.

One of the reasons for this upgrade is that Broadcom has secured a third customer for its customized AI chip business.

Although Broadcom did not disclose specific information about this customer, they mentioned that the project has started to accelerate and will begin mass production later this year.

Ramsay believes that this could significantly boost the revenue of the company's networking division, as Broadcom is unlikely to engage in a small-scale customized chip project that aligns with the company's preferred profit margins.

Furthermore, Ramsay pointed out that after completing the deal with VMware, Broadcom may experience unexpectedly positive effects in terms of growth and operational cost synergies.

Tristan Gerra from Baird stated that Broadcom is a "world-class" competitor in AI networking, but the current valuation does not reflect this.

He highlighted that Broadcom has reduced the cost and power consumption of AI interconnects in multiple ways, and these technological breakthroughs strengthen Broadcom's high-margin business model.

From Gerra's perspective, Broadcom's stock is trading at 21 times expected earnings per share (excluding stock compensation), which he considers relatively undervalued for a company leading in network AI technology with high profitability.

He also gave Broadcom an "Outperform" rating and set a target price of $1500.

Srini Pajjuri from Raymond James also viewed the event positively, although he maintained his market performance rating on the stock.

Pajjuri's analysis team expressed in their latest report that they are impressed by the breadth and depth of Broadcom's product line for the data center and AI markets, and they expect generative AI to continue to be a key growth driver for the company's semiconductor business.

Broadcom's AI business sees a major breakthrough in the first quarter, with revenue doubling to $2.3 billion compared to the same period last year, and is expected to soar to $10 billion this year, accounting for nearly one-fifth of the company's total revenue